Annuities, the Law, and the Future

The number of companies offering an annuity as retirement distribution option continues to decline. Only 16.6% reported doing so in 2010 according to PSCA's soon to be published 54th Annual Survey. This trend is well-established as the percentage has dropped year after year. 33.6% of companies offered an annuity as a retirement distribution option in 2000.

One reason is that plan provided annuitization must conform to federal law. Specifically, the law requires that the entire account balance be annuitized in joint and survivor form. For years plan participants offered a choice between a lump sum and a plan provided annuity overwhelmingly have chosen the lump sum option. Today a consensus is emerging that participants who annuitize should do so with only a portion of their retirement savings, which is not permitted under federal law. The law affecting plan provided annuitization is no longer relevant and at some point in the near future few if any employer-sponsored defined contribution plans will offer an annuity as a plan distribution option.

This is why PSCA is now making available the Hueler Income Solutions® platform to its member companies who want an alternative to an in-plan annuity distribution option. The Hueler Income Solutions® platform allows retirement plan participants to annuitize whatever portion of their retirement savings they wish in whatever form they feel is appropriate, obtaining customized quotes on a real-time basis from multiple companies. To avoid the federal law’s legal straitjacket and to address the plan sponsor concern that “in-plan” options such as income annuities require added fiduciary responsibility and impose increased plan complexity, this program is offered to participants as an IRA rollover option.

Every retiree’s financial situation is unique. Optimizing their finances in retirement requires customizable solutions. It is an enormous step forward that planners and academics now recognize that annuities are part of the financial toolkit available to participants and that 100% annuitization should not be a national priority.